KARACHI - The State Bank of Pakistan on Monday launched a new Refinancing Facility for modernization of Small & Medium Enterprises (SMEs) as a part of its overall strategy to focus on the development of SME sector in the country. Initially financing under the Scheme, which is effective from November 2 (yesterday, will be available for import/purchase of new Rice Husking Machines, Paddy Driers and Parboiling Plants by the sponsors of Rice Husking Units/Automatic Sella Plants, says a circular (SMEFD Circular No 17) issued by SBP on Monday. The Scheme will encourage the sponsors of Rice Husking Mills / Automatic Sella Plants to modernize their mills/units to produce quality rice. Other SME Clusters, as and when made eligible, will be announced separately. According to terms and conditions of the Scheme, the rate of mark-up once fixed shall remain locked-in for the entire duration of the loan, provided the borrowers continue to repay all scheduled instalments by the respective due dates. Similarly, in cases where the loan amount is not disbursed in full during the validity of an applicable rate, the un-disbursed amount shall attract the new rate of finance/refinance applicable on the date of its disbursement by the bank/DFI. Under the Scheme, banks/DFIs shall not take more than six weeks in evaluating an application for financing under the Scheme from the date of receipt of complete information from the borrower. Similarly, financing banks/DFIs shall ensure fulfillment of requisite pre-disbursement formalities by the borrower through due diligence as per their own internal arrangements to avoid any malpractice. According to the circular, only SMEs as defined under Prudential Regulations for SMEs shall be eligible to avail financing under the Scheme. Financing under the Scheme shall be subject to compliance with all rules and regulations including Prudential Regulations for SMEs. This facility will be available till June 30, 2011 on first-come-first-served basis subject to availability of funds. As per the eligibility criteria, (a) financing shall be available only for Balancing, Modernization and Replacement (BMR) of existing units / projects. (b) Only SME borrowers, as defined in Prudential Regulations for SMEs, shall be eligible to avail financing facilities under the Scheme. (c) Financing shall be available only for import/purchase of new Rice Husking Machines, Paddy Driers and Parboiling Plants by the sponsors of Rice Husking Mills / Automatic Sella Plants. Any other small and medium enterprises as and when made eligible for the purpose shall be notified separately. According to SBP circular, financing under the Scheme shall be available for a maximum period of seven years including a maximum grace period of six months. Financing facilities under the Scheme shall be provided through all commercial banks and Development Finance Institutions (DFIs). SBP further said financing under the Scheme shall be provided by the banks/DFIs on first come first served basis within the overall amount earmarked for the purpose. While adequate funds have been earmarked for the Scheme under reference, the banks/DFIs shall, however, be required to approach SME Finance Department, State Bank of Pakistan, before release of finances to the borrowers for confirming the availability of funds. State Bank will respond to the concerned bank/DFI within three working days in this regard with a copy to the concerned office of the SBP BSC (Bank) from where it will avail refinance. According to circular, the rate of service charge at which SBP will provide refinance to the banks/DFIs shall be determined on the basis of / reference to the average of weighted average yields of last two auctions of 3, 5 and 7 years PIBs subject to the following:- a) The service charges shall be announced for each fiscal year and shall remain valid for a period of one year from 1st July to 30th June. b) The rate of mark-up once fixed shall remain locked-in for the entire duration of the loan, provided the borrowers continue to repay all scheduled installments by the respective due dates. Similarly, in cases where the loan amount is not disbursed in full during the validity of an applicable rate, the un-disbursed amount shall attract the new rate of finance/refinance applicable on the date of its disbursement by the bank/DFI. Principal amount of loans shall be repayable in equal quarterly / half yearly installments after prescribed grace period, if any. However, if a borrower repays the loan amount or its installment, in part or in full, before the due date(s), the banks/DFIs shall be under obligation to repay the amount(s) so received within three working days to the concerned office of SBP-BSC (Bank) failing which fine for late adjustment of loan will be recovered from the concerned bank/DFI, at the rate specified by the SBP, said SBP circular.